Underwriter’s Account, Components, Entries, Importance

The Underwriter’s Account is a ledger account that records financial transactions between a company and its underwriters. It includes commission expenses, liabilities arising due to under-subscription, payments made, and settlements. This account helps in tracking the financial obligations of both parties, ensuring a clear record of underwriting transactions in the company’s books.

Components of the Underwriter’s Account:

The Underwriter’s Account consists of the following key components:

• Underwriting Commission

The company pays a commission to the underwriter for guaranteeing the issue of shares or debentures. The underwriting commission is recorded as an expense in the company’s books and credited to the underwriter’s account.

• Liability for Unsubscribed Shares

If the issue is not fully subscribed, the underwriter is responsible for purchasing the unsubscribed shares. This liability is recorded in the underwriter’s account, ensuring that the company receives the necessary funds.

• Payment to Underwriters

Payments made to underwriters for their services are recorded in this account. These payments may include underwriting commissions or amounts payable for unsubscribed shares.

• Adjustments and Settlements

If an underwriter purchases unsubscribed shares, the commission may be adjusted against their liability. The remaining balance is settled either through cash payments or other agreed terms.

Journal Entries for Underwriter’s Account:

a) Recording Underwriting Commission

📌 Entry:
Underwriting Commission A/c 🡺 Dr. (With the commission amount)
To Underwriter’s A/c

Explanation: This entry records the commission payable to the underwriter as an expense in the company’s books.

b) Payment of Underwriting Commission

📌 Entry:
Underwriter’s A/c 🡺 Dr.
To Bank A/c

Explanation: This entry records the payment of commission to the underwriter.

c) Recording Liability for Unsubscribed Shares

📌 Entry:
Underwriter’s A/c 🡺 Dr.
To Share Capital A/c
To Securities Premium A/c (if applicable)

Explanation: If the issue is under-subscribed, the underwriter is liable to purchase the remaining shares. This liability is recorded in the books of the company.

d) Adjusting Underwriting Commission Against Liability

📌 Entry:
Underwriting Commission A/c 🡺 Dr.
To Underwriter’s A/c

Explanation: If the underwriter is also purchasing the unsubscribed shares, their commission may be adjusted against the liability.

e) Final Settlement with Underwriters

📌 If the company pays the underwriter:
Underwriter’s A/c 🡺 Dr.
To Bank A/c

📌 If the underwriter pays the company (in case of excess commission adjustment):
Bank A/c 🡺 Dr.
To Underwriter’s A/c

Explanation: This entry records the final settlement between the company and the underwriter, ensuring all liabilities are cleared.

Importance of Underwriter’s Account:

• Ensures Transparency

The Underwriter’s Account provides a transparent record of financial transactions between the company and the underwriter, reducing disputes.

• Helps in Financial Management

By maintaining a proper record of underwriting commissions and liabilities, companies can manage their financial obligations efficiently.

• Compliance with SEBI Guidelines

Proper accounting ensures compliance with SEBI regulations and the Companies Act, 2013, which specify commission limits and liability treatment.

• Facilitates Audit and Tax Compliance

A well-maintained Underwriter’s Account simplifies audits and tax assessments, ensuring accurate reporting of financial statements.